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Author Topic: Starting out with stocks.  (Read 1496 times)
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kyaranger
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« on: February 13, 2006, 10:32:06 PM »

Hello, I am intrested in purchasing some stocks and or a mutual fund but I have very little experience in any of these.

I'm 21 years old and I have $500 dollars to invest. Basically I want a long term investment that I can cash in 30 years from now.

Does anyone have any experience and or advice for me?

Thank you,
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« Reply #1 on: February 13, 2006, 10:46:19 PM »

I'd start off with a basic growth mutual fund or an index fund.  With $500 I'd stay far away from individual stocks.
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unbreakable
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« Reply #2 on: February 13, 2006, 10:50:42 PM »

If you have $500 dollars, use that as savings rather than investing.  Savings are meant to cover unforseen problems which arise.

If you have any debt, pay all that off first.

Investing is what you do with surplus savings.
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Dafones
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« Reply #3 on: February 13, 2006, 11:06:19 PM »

If you want it to be something that's completely hands off for more than ten years, go with a growth or index mutual fund. (The index means that it basically represents the stock market overall, which, on the whole, has positive long term growth. If I have that right.)

Savings, like term deposits, won't have the same rate of return as mutual funds, and won't earn you much more than what will be lost through inflation, but there's no investement risk in them.

So I'm half and half with unbreakable - paying off any debt is the best investment you can make, absolutely, but if this is honestly meant to be a long term, hands off investment, I'd pop by your local bank and just ask a small funds investment speciallist to come up with a few mutual fund options that meet your desired risk and return.
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Laner
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« Reply #4 on: February 13, 2006, 11:10:10 PM »

I invested $500 in Lucent about 9 years ago when I just got out of college.  At the peak of the dot com boom it was worth over $2000 - If I had sold it then, this story would have a happy ending.  But I didn't - the tech stocks crashed, and I think I got about $100 once I finally sold it.  Now I do all my investing in mutual funds.  I don't see anywhere near the kind of rapid growth I did with the Lucent stock; but I don't see my stock prices freefalling from $80 a share to $3 a share within a year either.

unbreakable's suggestion to keep it for savings/emergency fund is right on.  Put it in a money market fund and you can probably get 2-3% on it.  Nothing you're going to get rich off of, but at least it'll compensate for inflation.

If you're dead set on investing it as opposed to socking it away for a rainy day - put it in mutual funds; a mutual fund is basically a bunch of different stocks managed by people who actually know what they're doing smile  Preferrably one that has been around a while - 5 years or more.
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kyaranger
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« Reply #5 on: February 13, 2006, 11:11:59 PM »

well I am currently in no debt, I just wanted to start in some sort of investment. The index mutal fund sounds pretty good. I think I will go to my bank and ask them for an investment specialist to come up with some options.


Thank you
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unbreakable
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« Reply #6 on: February 13, 2006, 11:30:28 PM »

There was also an investment vehicle I wanted to check into, called something like a medical savings account or something.  From the little I heard at the time, it is something like an life insurance annuity, where you are setting the money aside as a tax defered investment vehicle.  Except in this case, it pays out for medical emergencies rather than your death (or whatever the maturity date is, in either case).
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« Reply #7 on: February 13, 2006, 11:54:01 PM »

Quote from: "kyaranger"
well I am currently in no debt, I just wanted to start in some sort of investment. The index mutal fund sounds pretty good. I think I will go to my bank and ask them for an investment specialist to come up with some options.

Actually I'd avoid the bank on this one.  They'll inevitably try to steer you toward something that makes them more money than an index fund.  Like a variable annuity.

What I'd do is go to the website of Vanguard or Fidelity or one of the other bigger investment firms and download applications and a prospectus for a fund that interests you.

For an index fund you'll probably want to go with a S&P 500 Index Fund.  You shoud be able to do all this on your own with the internet and leave the bank out of it.
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unbreakable
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« Reply #8 on: February 14, 2006, 12:18:42 AM »

Why would a mutual fund be better than a variable annuity?
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SuperHiro
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« Reply #9 on: February 14, 2006, 12:22:58 AM »

Spiders. Invest in Spiders.

They follow the S&P 500.  Index funds are your best best IMO.
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KC
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« Reply #10 on: February 14, 2006, 12:23:17 AM »

If you haven't already done so, I would invest the money through an IRA, Roth IRA, or if you work, a 401(K).  This way, you get some tax benefit out of your investment.
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« Reply #11 on: February 14, 2006, 01:49:26 AM »

Quote from: "unbreakable"
Why would a mutual fund be better than a variable annuity?

They're not necessarily better or worse.  But variable annuities tend to be more of a money maker for banks whereas index funds tend to have very low operating costs.

At least that's how it was 6-8 years ago when I was more heavily into investing.
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Graham
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« Reply #12 on: February 14, 2006, 05:18:54 AM »

Quote from: "KC"
If you haven't already done so, I would invest the money through an IRA, Roth IRA, or if you work, a 401(K).  This way, you get some tax benefit out of your investment.


This is the route that I would go.  If you are working, contribute to your 401(k) as much as you can.
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drifter
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« Reply #13 on: February 14, 2006, 01:03:38 PM »

If you only have $500 go to the bank and put it into a bond or CD, get one for five years or something.

If you put the money into a fund you have to look at the fee's they charge.  Even if you do not actually do anything they still charge fee's and this could easliy degrade the initial investment.
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Dafones
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« Reply #14 on: February 14, 2006, 03:52:07 PM »

And that's a very good point. See what kind of fees they have for purchasing the fund, selling the fund, and/or maintaining the fund. It'll be be a combo of the three.
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Bob
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« Reply #15 on: February 14, 2006, 07:30:26 PM »

Quote
unbreakable's suggestion to keep it for savings/emergency fund is right on. Put it in a money market fund and you can probably get 2-3% on it. Nothing you're going to get rich off of, but at least it'll compensate for inflation.

I believe money market funds will get you more like 4% right now.
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« Reply #16 on: February 14, 2006, 08:18:43 PM »

Quote from: "Dafones"
And that's a very good point. See what kind of fees they have for purchasing the fund, selling the fund, and/or maintaining the fund. It'll be be a combo of the three.

Index funds are normally among the most reasonable in terms of fees.  They don't tend to turn over (or churn) stocks so they don't produce a lot of capital gains.  They also don't need active managers - pretty much all of it can be done by a computer.
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raydude
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« Reply #17 on: February 14, 2006, 08:35:55 PM »

With that small an initial investment I'd actually go with a dividend-reinvestment-plan (DRIP). Check out dripcentral.com for more info. Basically you buy 1 or more shares of a particular stock that has a DRIP plan (not all do). Then the dividends from that stock go into buying more of that same stock.

I could be wrong but I would go with the above because the initial costs to get into the plan are so low, unlike with mutual funds which may require initial investments of $1000 or more. Typically its the price of 1 stock share plus some initial fee like $10. Depending on the stock there may be no initial fee at all.

The other nice thing is that this really is a nice way to enter the stock market and actually follow a given stock which represents a given company. You also get nice snazzy looking annual reports every year, which for some companies actually is worth looking through. I personally like the Coke reports and Exxon's little (quarterly?) pamphlet.

As for keeping it for 30 years or more, I personally own Coke and Exxon-Mobil DriPs, and have owned them for about 10 years now. Do I think they'll be around in 20 years? Hell yeah. But research on dripcentral.com and draw your own conclusions smile.
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« Reply #18 on: February 14, 2006, 08:41:43 PM »

Actually, this ties in to a little project I wanted to work on when I get time (and money, of course).

What are the "must have" things anyone starting to get their financial house together, so to speak?

Everyone says 401k or IRA/Roth IRA, so I guess that selection is on the list.  What else is there which everyone SHOULD have?
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raydude
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« Reply #19 on: February 14, 2006, 08:43:36 PM »

Zero debt. The only allowable debt (IMHO) is mortgage, car loan, and student loan. Any credit card debt must be paid off in full every month.
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unbreakable
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« Reply #20 on: February 14, 2006, 09:13:45 PM »

Oh, certainly.  But I was primarily thinking about a list of investment/savings vehicles, since elimination of high interest debt would preempt investments and savings.
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